What’s dropsy? It’s an old-time term for the swelling of soft tissues due to the accumulation of excess water. Today, you’re expected to be descriptive and also ascertain the cause of things. So, you say so-and-so has edema due to congestive heart failure. However, I’m not going to talk about individuals but organizations. Unfortunately, dropsy is one of those afflictions that visit individuals as much as organizations like such other conditions as birth, growth decay and death.

Symptoms

Just as medicos have listed the symptoms to diagnose dropsy in case of individuals, organizational experts have catalogued the symptoms of organizational dropsy. One such expert was Peter Drucker, whose contribution to management, I dealt with in an earlier essay. In Landmarks of Tomorrow, he listed symptoms to indicate that organizational dropsy is setting in, if not, already well set:

when promotion becomes more important to its people than the accomplishment of their jobs

when it is more concerned with avoiding mistakes than taking risks

when it is preoccupied with counteracting the weaknesses of its members than with building on their strengths

and when good human relations become more important then performance and achievement.

Should you think the above criteria are trifle subtle to ascertain easily, here is a crisp diagnostic tool:

The moment people talk of implementing instead of doing, of finalizing instead of finishing, the organization is already running a fever.

How many companies do you know of in India which don’t have some (if not all) of the above symptoms? And remember: “The moment people talk of 'implementing' instead of ‘doing’ and of ‘finalizing’ instead of ‘finishing’, the organization is already running a fever”. The above Organizational Dropsy Test isn’t my invention. Drucker prescribed it years ago in Landmarks of Tomorrow.

Resistance to Change

Another sure sign of dropsy is resistance to change and innovation. And this inbred resistance to change explains why a vast majority of our industrial organizations haven’t had so far even the full impact of scientific management symbolized by Taylorism.

As a matter of fact, companies don’t change because inertia is in their DNA. Michael Hannan and John Freeman, in their 1989 study, Organizational Ecology, argue that organizations are actually selected for inertia by their environment, and “rarely change their fundamental structural features.” Change is deemed risky because it involves doing something that isn’t already working.

Moreover, the need for accountability and reliability in the modern economy run counter to the culture of ongoing radical experimentation. Think of McDonald’s, where a core premise is that no matter where you go, the food and decor will be exactly the same that you are accustomed to. Also, consider what happened to Coke after it tried to change the recipe of its iconic product. Even though taste tests showed that most people actually liked the new version better, the company is still stuck with the good old formulation. As a matter of fact, the larger and older the firm is, the weightier the option for stability.

This explains the current model why innovation so often seems to be driven by newcomers, rather than by profitable incumbents with huge R&D budgets. One of the ironies of corporate life is that as conditions change, thinking doesn’t. Take the example of General Motors. The workers’ unions frequently behaved like a parasite that didn’t care whether it killed its host itself on which they thrived. They didn’t hesitate to resort to strikes just as the company was trying to launch a desperately needed small car. They stubbornly demanded that GM keep paying surplus workers nearly full salary indefinitely, even as the company’s market share started declining sharply. Rather than trying to change this dynamic, management repeatedly caved in because any increase in wages, ironically, would “trickle up,” as GM strove hard to maintain a pay differential between management and the hourly workers.

Interestingly, even a dysfunctional culture, once well established, is astonishingly efficient at reproducing itself. New entrants assimilate whatever the vast majority practices at the time they enter.

Indian Scenario

Now back to the Indian scenario. After Independence, most of the entrepreneurs who emerged on the scene weren't industrialists but traders-turned-grabbers. (Perhaps the first industrialist India produced, namely, Jamaetji Tata was also the last we had.) Any step they took, any policy thrust they lobbied for, any unit they started, any activity they undertook had one sole guiding principle, namely, “what’s the most I can get out of it for myself”. The common man of the country – that helpless creature of Laxman’s cartoons – was the farthest from their thoughts. It was not for them to think of creation of wealth and work for its fair distribution to provide the people of this land those bare necessities that had been denied to them for centuries.

The public sector created to usher in the socialist pattern of society was presided over (behind the scenes) by politicians, ably supported by bureaucrats to divide the cake. (Fortunately for them, as the claimants grew, the size too kept apace). Those called upon to manage these units conceived of their task as of professional mercenaries i.e., make as much for yourself as you can while serving those who “hired” you. Over the years, things drifted to such a pass that the positions of CEOs of the public sector units were put on the auction block. No, I’m not exaggerating. To have their nominee appointed as the CMD of a large-sized public sector corporation, big-time contractor cartels made offers and counter-offers to the Hon’ble Minister, who had to make the final choice.

Short-termism

Short-termism has been – and continues to be – the curse of Indian industry. Rare indeed has been an industrialist of the caliber of Jamsetji Tata endowed with the vision of a future – a man who thought in terms infinitely larger than personal gain. Barring at the most half a dozen entrepreneurs in the country, the promoters of each group of companies has had one purpose alone i.e., to make as much money as possible and that too in the shortest possible time. The corporate credo is simple: think of today or at the most tomorrow, damn the day after. Hence, the emphasis in production has always been on quantity. There were, for instance, strict orders of BM Birla that, come what may, Hindustan Motors must produce hundred cars per day. Not infrequently, the managers knew that certain production line had developed a major snag which would adversely affect the performance of the end product. But he had no authority to stop the line because the daily quota of production must be met. The practice explains the notoriety Hindustan Motors acquired for indifferent quality. Did you shed a tear when the company announced its bankruptcy?

The one single consideration weighing with those who ventured in the world of industry, was to make money – and as much as possible in the shortest possible time. (It was for nothing that a Harshad Mehta wanted to prove that what the likes of Ambanis and Mittals made in a decade could be minted in fifteen months. No wonder he was an adored hero to a whole get-rich-quick generation). To begin with, almost all – Tatas are one of the very few exceptions – those who masquerade, today, as captains of industry had been traders pure and simple. And a trader’s sole consideration is Return on Investment (RoI) viewed in short time-span.

Immediately after Independence, the thrust of import substitution in selected areas made good economic sense. And that called for certain protectionist measures which provided ample grist to the neo-industrialists’ mill. The vast market thirsting for supplies brought into being a sellers’ market which created an industrialists’ lobby. The result was the notorious triangular nexus: industrialists, bureaucrats and the politicians. Indeed, for the benefit of the public, the three partners would make, occasionally, hypocritical noises against the system. Privately, they worked over time to perpetuate the system. A control regime suited the industrialists because that created shortages which, in turn, generated huge black market premiums, a part of which lined the pockets of bureaucrats and some of which found its way to the election funds of politicians.

Of the three partners, the biggest beneficiaries, of course, were the industrialists. A typical entrepreneur would invest, say, Rs 10 crore to start a unit, (Don't forget in the 1950s, 10 crore was a sizable amount). Right contacts got him Rs 90 crore from the financial institutions as seed capital. He would recover his own investment of Rs 10 crore within a year as the construction work made headway. (The contractors passed on in cash part of the profits because of the prearranged inflated rates). The rest of the amount was recovered through the mechanism of over-invoicing of plant and equipment imported from abroad). So, within a year, our great risk-taker was ready to invest the same recycled Rs 10 crore in another venture. And once launched on the highway to industrial stardom, there was no looking back. In the bargain, every finger in the pie picked up dollops to lick.

Inadequacies

Now a quick fast forward. As the protectionist phase ended and competition set in, the inherent inadequacies of our management scene showed up. And these inadequacies must be viewed in the backdrop of the trends and techniques thrown up in the post-Fordism phase both in the West, especially in the United States, and in the last few decades in Japan and the Asian tiger economies and then again in the West in response to the Tigers’ challenge that the Tiger economies posited.

Have we been quick enough to hammer out a meaningful response to the challenge? Most unequivocally, not. And that is the greatest source of our organizational dropsy.

Few more things come to mind- Almost all our business houses have exhibited one trait. In the protectionist era, they bemoaned government controls, extolling virtues of free market. Currently, every time the market takes a dip, the business leaders virtually beg for support in the name of saving jobs and what not. They do not shy from manipulating resources (be it financials on concessional terms or land acquisition at throw away prices). Laxman's common man remains far from thought not only in India, but everywhere. He is always compromised by the politicians after getting the periodical vote. In the absence of controls, corporate leaders throughout the world have not acted responsibly.They have exhibited only greed without respect to laws of the land or acceptable ethical behaviour. Similar behaviour has been seen even in the USA (recall how major automobile giants lobbied up for government support).